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Recommendation: Change how Michigan taxes fuel at the pump

Lester Graham
Michigan Radio
When you pull up to the pump, you're paying two taxes. One is a per-gallon motor fuel tax. The other is the state's 6% sales tax. Only the motor fuel tax revenue goes toward maintaining or building roads.

Governor Gretchen Whitmer is using borrowed money to fix state roads. The state has approved borrowing $3.5 billion over five years to launch reconstruction. That’s a short-term fix. Funding for Michigan’s roads is a long-term problem.

A policy group recommends a change in how Michigan collects fuel taxes.

When you fill up at the pump, you pay a per-gallon motor fuel tax (currently 27.2 cents- it will go up January 1st by 1.4 cents) and then on top of that you pay the state’s 6% sales tax. But that sales tax generally does not go to roads.

Lester Graham
Michigan Radio
Road construction at the intersection of I-94 and US 127 in Jackson.

“Most of the public like the idea of ‘If I’m paying tax on gas, it should go to roads,’ especially when our roads need so much new revenue,” said Bob Schneider with the Citizens Research Council of Michigan.

He said the revenue neutral change in taxing would add more than $1 billion a year to road funds, but not affect the price of gasoline or diesel fuel at the pump.

He noted such a revenue neutral shift to an all motor fuel tax has not happened in the past because the loss of sales tax causes other problems.

“It’s the challenge of local governments having a budget hole, K-12 schools have a budget hole that’s always made that hard.”

The difference now is that the state currently has an ongoing tax revenue surplus that could fill those holes and more.

“We have a permanent revenue surplus of $1.4 billion in the general fund and then another $1.1 billion in the School Aid Fund.”

He said that still leaves a significant amount available for new programs such as increased funding for schools and/or increases in tax relief such as the Earned Income Tax Credit.

Lester Graham reports for The Environment Report. He has reported on public policy, politics, and issues regarding race and gender inequity. He was previously with The Environment Report at Michigan Radio from 1998-2010.
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